TIRANA, June 11 – Foreign direct investment registered a sharp double-digit decline in the year’s first quarter negatively affected by record-low international oil and mineral prices paralyzing investments in one of the country’s top exporting industries.
Central bank data shows FDI dropped by an annual 42 percent to €158 million in the first quarter of year, mainly affected by a sharp cut in oil investments as international oil prices fell to a 12-year low of $30 a barrel.
Canada-based Bankers Petroleum, the country’s largest oil producer, invested only about $12.7 million in the first quarter of this year, down from about $50 million during the same period in 2015, in one of their lowest investment rates since the start of operations a decade ago.
The Canada-based operator is about to conclude a deal with China’s Geo Jade which has agreed to take over its major Albania assets and a newly acquired minor oil block in Hungary for a reported C$575 million (€392 mln).
Mine investments have also almost frozen as mineral prices stand at a record low, forcing several enterprises to cut production and staff until prices recover.
The first quarter performance reflects a deteriorated business climate as shown by two key surveys by the American Chamber of Commerce and the German Association of Industry and Trade in Albania and the failure of the government’s incentives such as “Albania 1 Euro” and industrial parks development for symbolic amounts in return for investment and job creation.
The country’s high tax burden and failure to implement a long-awaited justice reform that would also provide guarantees to foreign investors in a highly perceived corrupt judiciary are considered key barriers.
Since 2014, the corporate income tax and the withholding tax on dividends, rents and capital gains have increased by 5 percent to 15 percent, making the tax burden in Albania one of the region’s highest.
“FDI inflows continue to remain concentrated in the oil sector with 27 percent, followed by energy with 25 percent, construction with 17 percent and telecommunication with 6 percent,” said the central bank in its first-quarter report.
The sharp cut in international oil prices since mid-2014 has significantly affected investments in oil exploration and production with some of the key operators announcing deals to sell their Albania operations. The mining and steel industries have also been severely affected by the slump in commodity prices, with the key steelmaker, Turkish-run Kurum, recently initiating bankruptcy proceedings.
Albania’s foreign direct investment stagnated in 2015 when it grew by a mere €12 million to €881 million, according to Bank of Albania data.
At €881 mln, the annual FDI flow was up by only 1.4 percent compared to 2014 and down by 6.8 percent compared to the peak level of €945 mln in 2013.
Prospects for the remainder of the year appear more optimistic as oil prices have currently recovered to $50 a barrel and two major FDI projects such as the Trans Adriatic Pipeline bringing Caspian gas to Europe and the Devoll hydropower plant by Norway’s Statkraft are progressing.
The increase of the corporate income tax by 5 percent to 15 percent in 2014 and the review downward of electricity prices for private and concession hydro-power plants are also believed to have affected investments, by increasing the tax burden and making Albania less attractive among regional competitors applying flat tax regimes of up to 10 percent.
Albania was the second largest recipient of foreign direct investment among EU aspirant regional countries for the fifth year in a row in 2014, but the FDI stock remains the lowest compared to four other regional competitors, according to a report by UNCTAD, the United Nations body responsible for international trade.
The telecommunication, manufacturing and extractive industries have attracted around half of the FDI stock in Albania during the country’s past two decades of transition into a market economy after the collapse of communist regime and its planned economy.
Greece, Canada, Switzerland, Austria, and Italy are the biggest foreign investors in Albania. China is about to emerge as a top foreign investor after preliminary deals by Chinese companies to acquire Bankers Petroleum oil company and the country’s sole international airport earlier this year.
The Albanian government and the IMF expect the economy to accelerate to 3.4 percent in 2016, up from 2.6 percent in 2015, slightly higher compared to expectations of 3 to 3.2 percent by the Bank of Albania and other international financial situations.
